Q&amp;A: Greg Frazier

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HONG KONG -- Greg Frazier is chief policy officer of the Motion Picture Assn. As his longtime Washington mentor Dan Glickman prepares to step down as CEO after nearly six years at the head of the Hollywood studios' global advocacy group, Frazier visited Beijing, the site of many of the biggest battles they fought together in the world's fastest growing movie market. Frazier spoke with THR's senior China correspondent Jonathan Landreth about the WTO, flat fees and movie quotas.

The Hollywood Reporter: Why are you here?

Greg Frazier: The WTO just announced its decision and, frankly, the hard work starts now, as to how it's going to be implemented and how China is going to bring itself into compliance. I thought it would be useful to get here to talk to people in government and industry and observers to get the lay of the land about what happens next.

THR: What does the WTO ruling mean?

Frazier: If you go to the letter of the decision, for the audio-visual sector, there are three elements. One, is the decision that the import monopoly is illegal. Before, only China Film could import. With the decision, you could do it. I could do it. Anybody can do it. Second, the decision struck down a number of the import and distribution restrictions on home entertainment products that previously had to be imported either by the state or a wholly-owned Chinese entity. Third, the United States government said that the system of distribution was illegal because U.S. films were treated one way, whereas a Chinese film could avail itself of any number of distributors. When China defended itself it said, "Our system may be peculiar, and that may be how it operates today, but, in fact, any entity that's licensed, may distribute a film," the WTO said in reply, "Okay, if you say that's the way the system operates, then there is that possibility for U.S. films to be treated the same." The Chinese defense was many things. It was that all of these market barriers exist not to impede access to the market per se, but to manage the censorship of the content coming to market. The Chinese have the right to censor. The MPAA would prefer they do something different, but it's within their rights and we didn't challenge it. What we challenged was the notion that there is no other way to manage censorship. Given the existence of ratings systems elsewhere in the world and other methods of control the argument the Chinese made is very difficult to defend and I'm not surprised that they failed. Why do certain titles get in while other don't? I don't know. The lesson is that the censorship system is less than transparent and it can be manipulated for political purposes.

THR: Was the late-2009 distribution of "Twilight" and "District 9" by new entrants into the sector a break in the monopoly?

Frazier: I'm not sure what the entry of these two particular films says. One thing that's frustrating about the Chinese system is that there are all these rules and sometimes they're implemented and sometimes they're not. One could say China was foreshadowing what's to come by letting somebody else distribute those films. I'm not afraid of that. That's exactly what I want to happen.

THR: Do upstart distributors aiming to bring in more films for a one-off "flat fee," rather than a share of the boxoffice, hurt Hollywood studios' negotiations with state distributors?

Frazier: The more films that you get in the door, the more people there are inside China with an interest in growing the market. This sets up a dynamic where you have more than just the Motion Picture Assn. arguing for market liberalization. Do you go into battle with one army or 20 armies? What does it take for us to go out and recruit those 20 armies? The flat fee terms have historically been uninteresting to the MPA member companies because the terms aren't favorable. It doesn't mean one can't be creative and innovative in defining "flat."

THR: Do you see the MPA member companies beefing up their offices here for a move toward a distribution model?

Frazier: I really don't know.

THR: How do the studios feel about small distributors trying to handle their films on a flat fee basis?

Frazier: That would be great. There are a whole number of problems in this market, one of which is the master contract. Pleading, begging with China Film to change it has gone nowhere. If these other players can and are willing to be distributors that sets up a scenario where I can go to China Film and say, 'This person over here is willing to put out my film on this basis. I'm willing to have you continue to distribute my films, but you're going to have to match this person.' Right now, competition doesn't exist here at all.

THR: Do you think that some of these new players will have the muscle to distribute Hollywood films as well as a China Film?

Frazier: Your question presupposes that China Film has been able to promote and distribute Hollywood films in an effective way.

THR: The sheer size of the audience made China the second largest boxoffice territory after the U.S. for the MPA films "Transformers 2," "2012" and "Avatar." Could indie distributors have handled those titles as well as China Film?

Frazier: The logic of the premise of your question says, 'Yes, of course, because there's a critical mass in the audience.'

THR: Let me put a finer point on the question -- do you believe the new indie distributors will be able to work around China Film?

Frazier: In the near term, I don't know. In the long term, I don't know. What I know is that in the conditions that have existed for the last 20 years you've had no ability for this growth or experimentation, for smart people to take advantage of potential inefficiencies in the market. What we're trying to do is to clear out some of those inefficiencies. Is it going to happen immediately? No. Will it happen over time? I hope so.

THR: Ten years on from China's accession to the WTO -- when Hollywood movies were a major sticking point in the talks -- that sounds like very cautious optimism. What's the strategy now?

Frazier: Yes, movies were a major sticking point, and as to our next strategy, the strategy is to make it work. It's still early. We're trying to understand where the possibilities are. Our two governments have a lot of work to do. The whole theory of the WTP case was to get more people invested in the market and to put pressure on the Chinese government to loosen up its system.

THR: THR: What about the lack of optimism in the industry that the WTO decision could erode the annual 20-title cap on revenue sharing film imports.

Frazier: If they expect it to happen tomorrow, they're foolhardy. But if they think it's never going to happen, I think they're equally foolhardy. This is the first time you've got any chink in the armor, the first dent that the U.S. has made in the Chinese defense of its market. We're trying to set up a reason that the Chinese government wants to take this step. Why is it in their interest? Because more Chinese can profit off of a growing film market. How? You grow your domestic market, but you also put movies on your screens that are going to make money. Over the long haul, the question is do you either continue to play 'Confucius' for another 20 years and keep the quota in place? Or do you let in more 'Avatars' and grow that market? If you can set up a way where more people have more interest in more 'Avatars' then at some point, people are going to say, this makes no sense to allow just 20 films in. If you let 21 films in, more Chinese will benefit, from the Chinese distributors to the Chinese popcorn sellers. The reason for the WTO case is that only in China does the government decide all these little items with respect to what is normally done business-to-business. It's arbitrary, it's not transparent, it's punitive at times. Do you want to live in a market and a system where the government is deciding every single little thing or do you want to see how it's done elsewhere? For us, the answer is the latter, so what do you do about it? You start picking away at those things that you can. You either sit back and take, and you get what you are handed, or you can think that the government is going to do it out of the goodness of their heart, and they're not. There's got to be a reason for them to do it. It's human nature. It's like all governments. What's the reason for them to do it? Losing a lawsuit is as good a reason as any.